Weekly SSRN Tax Article Review And Roundup: Speck Reviews U.S. International Tax Policy And Corporate America By Hanna & Wilson

This week, Sloan Speck (Colorado; Google Scholar) reviews a new work by Christopher H. Hanna (SMU) & Cody A. Wilson (Gibson, Dunn & Crutcher, LLP), U.S. International Tax Policy and Corporate America, 48 J. Corp. L. 261 (2023).

Over the last decade, conversations about corporate tax reform in the United States have reflected a broad range of competing visions for cross-border business taxation. In U.S. International Tax Policy and Corporate America, Christopher Hanna and Cody Wilson argue that the Tax Cuts and Jobs Act in 2017 and the Inflation Reduction Act in 2022—each significant legislative changes to U.S. international taxation—may foreshadow a third major shift. Hanna and Wilson speculate that this next step could yield “a worldwide no-deferral system at a low corporate tax rate.” Potentially more surprising: this new regime could garner support from “Corporate America,” which Hanna and Wilson define as U.S.-based publicly traded corporations.

Hanna and Wilson make three general interventions into discussions about U.S. international taxation. First, Hanna and Wilson reinforce the fundamental ambiguity and potential instability of the TCJA’s ostensible push towards a more territorial tax system. Not only does the TCJA’s GILTI regime articulate a possible mechanism for the current taxation of U.S.-based multinationals’ worldwide income. As Hanna and Wilson highlight, the TCJA’s 21% corporate rate offers a plausible starting point for political negotiations over the rates applicable to this worldwide income. The IRA’s 15% corporate minimum tax on book income further advances this theme. And, drawing on anecdotes from Hanna’s service as a policy advisor to the Senate Committee on Finance, U.S.-based multinationals might accept a broader cross-border base in exchange for lower tax rates and (presumably) less antiabuse infrastructure.

Hanna and Wilson’s political economy story is thoughtful and nuanced—and implies that, as the reform process evolves, the United States may move further from any emerging multilateral consensus on international taxation. Critical to the OECD’s two-pillar solution is coordination among countries. Under Pillar 1, residence countries must cede some taxing authority to market countries, and coordination failures lead to double taxation—the primary bogeyman in international tax policy before the advent of double nontaxation. Pillar 2 envisions a dramatic expansion in international coordination to administer and enforce at 15% global minimum tax. Hanna and Wilson credibly describe a parallel political process that essentially circumvents coordination. For me, this analysis raises questions of whether Corporate America benefits by arbitraging the United States’ tendency to strike its own path against global trends in intergovernmental cooperation.

Second, Hanna and Wilson foreground accounting treatment as a core driver of management decisionmaking, both in lobbying for (or against) legislative proposals and in post-reform tax planning. Particularly salient is effective tax rate (ETR) for financial statement purposes, which may or may not track cash taxes paid, average effective rates, or marginal effective rates. Hanna and Wilson emphasize the centrality of permanent book-tax differences to the calculation of ETR—and management’s relative indifference to timing-related relief that generates deferred tax liabilities and does not affect ETR. The TCJA unsettled the historic landscape of permanent book-tax differences claimed by U.S-based multinationals, excising longstanding benefits for domestic production activities and introducing new benefits for foreign-derived intangible income. In a variant of “broad base, low rates” reform, these companies might prefer the administrative simplicity of lower headline rates to the computational overhead of book-tax differences. As long as ETRs remain the same or fall, Corporate America may be on board.

Whether Corporate America (however construed) currently has such homogenous interests warrants further consideration, however. In the 1980s and 1990s, corporate interests seem to have preferred base carve-outs and tax expenditures, such as the investment tax credit, to blanket rate reductions. Although this dynamic undoubtedly has changed over time, industry-specific interests remain. Similarly, a significant slice of corporate income falls outside of public-company GAAP reporting. For these companies, accounting treatment may mean less than cash taxes paid. Indeed, lower statutory rates may draw firms into the corporate sector, unsettling choice-of-entity decisions that the TCJA’s drafters worked diligently to preserve. At the very least, divergent interests and smaller players should be integrated into Hanna and Wilson’s political economy framework.

Third, Hanna and Wilson bolster the importance of the past in projecting the path of future reform. The Internal Revenue Code reflects a temporal layering of tax instruments. As Hanna and Wilson elaborate, GILTI coexists with Subpart F and deferral mechanics. In addition, historic norms—for example, unilateralism and capital export neutrality—provide rationales for change that compete with concerns about stateless income and revenue equity for market countries. Nostalgia matters, and worldwide taxation, in particular, invokes another era in international economic relations—one to which some may wish to return. More broadly, Hanna and Wilson implicate questions about the endpoint for the current phase of international tax reform. From this perspective, worldwide taxation without deferral may simply set the stage for another iteration of reform.

Overall, Hanna and Wilson’s article yields important insights into the dynamics of international tax reform. Scholars and policymakers in and outside of the United States should find Hanna and Wilson’s exposition and commentary illuminating.

Here’s the rest of this week’s SSRN Tax Roundup:

• Marco Mendoza Avina (Harvard U.), Vincent Arel-Bundock (U. Montréal), André Blais (U. Montréal, Dept. Pol. Sci.), Rita de la Feria (U. Leeds) & Allison Harell (U. Québec à Montréal), Outgroup Bias and the Unacceptability of Tax Fraud, Pol. Stud. Rev. (forthcoming)
• Fabian Barth (Bournemouth U.), Enforcing EU Law Rights as a Taxpayer—The Case for Better Access to the CJEU (Feb. 3, 2023)
• Allen N. Berger (South Carolina, Darla Moore Sch. Bus.), Dimitris K. Chronopoulos (U. St. Andrews, Sch. Mgmt.), Anna L. Sobiech (U. Cologne, Ctr. Macroecon. Res.; U. St. Andrews, Sch. Mgmt) & John O. S. Wilson (U. St. Andrews), Taxation and Bank Liquidity Creation (Mar. 17, 2023)
• Emanuela Carbonara (U. Bologna, Dept. Econ.), Philip A. Curry (U. Waterloo), Claire A. Hill (Minnesota) & Francesco Parisi (Minnesota; U. Bologna), Institutional Flexibility in Tax Law and Enforcement, Minn. Legal Stud. Res. Paper No. 23-06
• Christopher H. Hanna (SMU) & Cody A. Wilson (Gibson, Dunn & Crutcher, LLP), U.S. International Tax Policy and Corporate America, 48 J. Corp. L. 261 (2023)
• Monte Jackel (Jackel Tax Law), Death as a Disposition Redux, 164 Tax Notes Fed. 101 (Oct. 7, 2019) (including various Letters to the Editor)
• M.P. Ram Mohan (Indian Inst. Mgmt. Ahmedabad) & Aditya Gupta (Indian Inst. Mgmt. Ahmedabad; Nat’l U. Study & Res. Law, Ranchi), Taxing Intellectual Property Assets on a Cross-Border Transaction: Application of Mobilia Sequuntur Personam and the Case of the India–Mauritius Tax Treaty, 2023 Brit. Tax Rev. 97
• Mark Penno (Iowa, Dept. Acct.), A Theory of Tax Planning (Oct. 2022)
• Amir Shachmurove (Reed Smith LLP), Queenie and Robins in a Gas Fracking World: The Automatic Stay’s Conjectured Extension to Actions Against Non-Debtor Pool Participants, 31 No. 3 Norton J. Bankr. L. & Prac. NL Art. 4 (2022)
• Darien Shanske (UC, Davis), Young Ran (Christine) Kim (Yeshiva), Reuven S. Avi-Yonah (Michigan), David Gamage (Indiana), Orly Mazur (SMU), Aman George (Democracy Forward Found.) & Samara Spence (Democracy Forward Found.), Brief of Amici Curiae Tax Law Professors in Support of Appellant (Comptroller of Maryland) in Comptroller of Maryland v. Comcast et al. (the Maryland Digital Advertising Case), Indiana Legal Stud. Res. Paper No. 501 (Mar. 31, 2023)
• Junwei Xia (Texas A&M, Dept. Acct.), Qualitative Disclosure as a Tax Enforcement Mechanism: Evidence from the U.K. Tax Strategy Disclosure Requirement (Mar. 23, 2023)